The Financial Conduct Authority has issued new rules to make authorised financial firms more responsible for their appointed representatives.

It says its new rules “will help prevent consumers being mis-sold or misled by appointed representatives and will prevent misconduct by appointed representatives undermining markets operating fairly and safely”. 

The watchdog says appointed representatives are not authorised by the FCA, and can offer certain financial services or products under the responsibility of authorised firms, known as principals. 

It says principal firms are responsible for ensuring their appointed representatives comply with FCA rules. 

The body says: “While some principals do this effectively, many do not adequately oversee the activities of their appointed representatives.”

The FCA says under the new system principal firms will need to: 

*Apply enhanced oversight of their appointed representatives, including ensuring they have adequate systems, controls and resources.

• Assess and monitor the risk that their appointed representatives pose to consumers and markets, providing similar oversight as they would to their own business
• Review information on their appointed representatives’ activities, business and senior management annually, and be clear on the circumstances when they should terminate an appointed representative relationship.
• Notify the FCA of future appointed representative appointments 30 calendar days before it takes effect.
• Provide complaints and revenue information for each appointed representative to the FCA on an annual basis.

The regulator says its new rules do not change the fact that principals are responsible for the activities of their appointed representatives. It adds it is working with the Treasury to explore if further changes are needed to the appointed representative regime, which would require future legislative change. 

The FCA says that as part of its three-year strategy it is also undertaking targeted supervision of principal firms across the whole financial services sector, using improved data and analytical tools. It adds it is also increasing scrutiny on firms applying for authorisation and as they appoint appointed representatives.

FCA executive director for consumers and competition Sheldon Mills says: “While appointed representatives can bring innovation and choice, principals and appointed representatives account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme. 

“They also generate up to 400% more supervisory cases and complaints than other directly authorised firms.

‘The changes we’re making will help ensure that principals manage their appointed representatives better – ensuring that they provide the oversight needed to avoid consumers being mis-sold or misled and to make sure markets can operate safely and fairly. They will also need to provide us better data and information to support our own work.”

The role of appointed representatives was highlighted in the collapse of supply chain finance firm Greensill Capital last year, run by Australian businessman Lex Greensill. 

Greensill Capital was not regulated by the FCA, but used appointed representatives when it needed to undertake regulated activities. It also used former Prime Minister David Cameron as a lobbyist.

Last July, a Treasury Select Committee report into the collapse of Greensill said: “The committee concludes that firms may be using the appointed representative’s regime for purposes well beyond those for which it was originally designed.

“It recommends that the FCA and Treasury consider reforms to the regime, with a view to limiting its scope and reducing opportunities for abuse.”